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What elements should you include in a shareholder agreement?

As we have previously discussed, shareholders are the people who own a business. Companies in Texas, and elsewhere, may have one shareholder or multiple. At The Jackson Law Firm, we know that disputes may arise when there is more than one shareholder, which may affect your business’ operations. In this post, we will discuss shareholder agreements.

Like other business contracts, shareholder agreements can be customized to fit the needs of you and your fellow shareholders. Therefore, they may include a number of elements. These provisions address numerous topics, including how shares, day-to-day issues and disputes will be handled.

Many shareholder agreements include buy-sell provisions. According to Bloomberg Business, buy-sell provisions may include restrictions for the transfer, sale, assignment or pledging of shares by shareholders. This may help avoid issues in the event that a shareholder decides to sell his or her shares. Buy-sell provisions may also afford you the opportunity to refuse a sale and allow the company to redeem a shareholder’s shares upon his or her death.

Operations provisions are commonly included in shareholder agreements. These elements specify how a company will be run. Operations provisions may include stipulations for if and when shareholders are able to appoint directors to the company’s board or to committees of the board. Shareholder agreements also frequently include vetoes sections. These provisions list transactions that cannot be completed without approval from a protected minority shareholder. Thus, they prevent one shareholder from exercising too much power over another.

There are situations in which you and one other shareholder may hold equal 50 percent shares of your business. In such cases, disputes may be particularly disruptive as you may become deadlocked. For this reason, it is helpful to include a deadlock provision in your shareholder agreement. This section will stipulate how you should proceed if you are at odds with your business’ other shareholder and the two of you are unable to agree on how to move forward.

For more information about shareholder agreements, please visit our partnership and shareholder disputes page. 

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